The Palestine business

The Palestinian Authority recently claimed that Israel gravely harms the PA economy. In fact, Palestinian officials argue that the Israeli occupation exacts a heavy price from their economy, offering a conservative estimate of $7 billion in the past 10 years.

The above estimate includes the frozen economic activity in Gaza as result of the blockade policy, the lost income from natural resources used by Israel given its control of most of the occupied area, additional Palestinian costs as result of restrictions on movement, and further limitations on local production.

Gaza Aid

EU launches €10M desalination project in Gaza / News agencies

European Union, Palestinian Water Authority sign memorandum of understanding regarding construction of low-volume desalination plant in Khan Younis; project to be completed by 2015

Let's forget for a moment why a blockade was imposed on Gaza, why roadblocks have been erected in Judea and Samaria, and why is it that our communities surround themselves with a fence, rather than Palestinian communities. Let's assume that the Palestinian claims are fully accurate, and that the accumulated economic damage they incurred indeed totals $7 billion. As it turns, this is still a good deal for them.

I argue that the Palestinians have turned their misery into an economic strategy that benefits them. As result, they receive more money than all the damage they allegedly incur. Moreover, the current situation is economically beneficial for them, to a great extent.

The Palestinians fail to note that at this time they receive, both directly and indirectly, some $3-4 billion in annual international aid. This is more than double the annual damage to their economy as result of the occupation.

The Palestinians are world champions in per capita aid. On average, each one receives donations of some $1,000 per year. More than 60% of the Palestinian Authority's production originates from global donations. Statistical figures show that in the years 2009 and 2010, the PA received donations totaling some $4 billion per year. The scope of donations more than doubled itself since 2005.

Palestinians misuse aid

That is, if we count all the funds received by the Palestinians from all sources only in the past 10 years, we reach an amazing sum approaching $25 billion. This is about $18 billion more than their own accumulated damage calculations.

Are the Palestinians at least doing useful things with the money? Not necessarily. Most of these funds are not used to encourage growth, but rather, to pay salaries to countless officials and to fund an inflated bureaucracy. Part of the aid even finds its way to the only developed industry in the Gaza Strip – the "defense" industry.

The Palestinians could use the immense sums of money they receive from the world to renovate their infrastructure, thereby providing a future basis for developing industrial power premised on cheap labor. There is no shame in this strategy, adopted by Turkey, which now serves as Western Europe's production line.

However, as it turns out, the Palestinian investment in infrastructure is miniscule. The PA barely renovates roads and sets up almost no desalination plants despite receiving the funds and permits to do this. After all, it's much easier to pollute in Israel's direction. The Palestinians neglected their water infrastructure and also failed to set up hydro infrastructure, because it's easier to rely on the Israel Electric Company.

The Palestinians claim that the conflict with Israel harms them economically. There is no doubt this is true. Yet on the other hand, it seems they profit much from the conflict. Had it not been for the conflict, the Palestinian would barely receive any global aid. So do they have a genuine economic interest in putting an end to the conflict?

Dr. Adam Reuter is the chairman of the Reuter Maydan investment house and the CEO of the Financial Immunities consulting firm